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return (Schedule E), petitioners reported, inter alia, “Rents
received” of $23,013 with respect to the Loomis residence. The
$23,013 that petitioners reported in Schedule E as rent with
respect to the Loomis residence included the $5,100 of Loomis
residence monthly payments that Olin Ordnance reported in Form
1099 as part of the $52,894.31 of nonemployee compensation that it
paid to Mr. Palmer during 1995 pursuant to paragraph 5 and Exhibit
D of the Marion plant/Palmer consulting agreement.
In Schedule C, Profit or Loss From Business, of the joint
return (Schedule C), petitioners reported in Part I, Income, gross
receipts of $47,794, which was the amount ($52,894.31) of
nonemployee compensation that Olin Ordnance paid to Mr. Palmer
during 1995 and reported in Form 1099 reduced by the amount
($5,100) of Loomis residence monthly payments that petitioners
claimed in Schedule E as rent with respect to the Loomis resi-
dence.
In the notice of deficiency (notice) issued to petitioners
for the year at issue, respondent, inter alia, increased petition-
ers’ Schedule C reported gross receipts by $95,935 because respon-
dent determined that during 1995 Mr. Palmer had constructively
received that amount of nonemployee compensation from Olin Ord-
nance.11 Respondent also determined that the $5,100 of Loomis
11The $95,935 by which respondent increased petitioners’
Schedule C gross receipts for the year at issue because respon-
(continued...)
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